Owners of pro sports teams find lots of ways to win

September 29, 2002

Despite all the poverty pleas you read, professional sports owners make
oodles of money operating a team and oodles more selling it  taking
advantage of juicy tax writeoffs along the way.

It's all spelled out carefully in an excellent textbook published by
Prentice Hall, "Sports Economics," by Rodney D. Fort, professor of
economics at Washington State University.

Just how profitable is pro sports ownership? San Diegans were not surprised
to learn that two of their tax-subsidized team owners are on the Forbes 400
list of the richest Americans: Alex Spanos, Chargers, worth $850 million,
and John Moores, Padres, worth $740 million.

A full 26 of the Forbes 400 are owners or part-owners of major baseball,
football, basketball and hockey teams, not including the defrocked Eddie
DeBartolo, suspended from the San Francisco 49ers after pleading guilty in
a felony bribery and gambling case.

Several other cities are like San Diego  having two major teams whose
owners are on the Forbes 400 list.

Among them: the Miami Heat and Dolphins, St. Louis Blues and Rams, Atlanta
Braves and Falcons, Tampa Bay Lightning and Buccaneers, Houston Astros and
Texans, Minnesota Twins and Vikings, Dallas Mavericks and Cowboys, and
Detroit Lions and Red Wings.

Most of these owners are on the dole  that is, their stadiums are heavily
or entirely subsidized with tax dollars.

Some own more than one team: Paul Allen, worth $21 billion, owns the
Seattle Seahawks and Portland Trail Blazers; Philip F. Anschutz, Qwest
entrepreneur worth $4.3 billion, owns the Los Angeles Kings and one-third
of the Lakers, and Stan Kroenke, worth $1.4 billion, owns the Colorado
Avalanche and Denver Nuggets, along with a significant piece of the St.
Louis Rams.

"Our guiding assumption is that team owners maximize profits," says the
textbook, explaining in detail the various methods of making income top outgo.

But, of course, sports owners are always pleading indigence, explains the
text. But that's often posturing for labor negotiations or begging for a
public subsidy. "If their claims of losing tons of money are convincing,
then chances for a stadium subsidy or favorable lease contract may
increase," explains the textbook.

In an interview, Fort notes that a classic case of bringing out the
billionaires' crying towel was the congressional testimony by Major League
Baseball Commissioner Bud Selig in December. Selig complained that major
league teams had suffered $232 million in operating losses last season, and
all but a handful of teams were losing money.

It was completely misleading, says Fort. "It's like asking me what kind of
car I drive, and I say it is a red car. It's not a lie  my car is red 
but it's not the information you need to know," says the economist.

Selig had left out key items such as depreciation and the special tax
status teams enjoy. "On balance, collectively, they (major league teams)
are making money," says Fort. (Forbes reported that the teams made $75
million, and 20 of 30 were profitable; Selig then denounced the publication.)

But the values of franchises would not be soaring if owners were actually
losing money, points out Fort. And what owners don't like to discuss are
the special tax advantages of team ownership.

For example, as the textbook explains, net operating revenue may be
negative. But the corporation may be organized as a pass-through firm 
say, Subchapter "S" or partnership  for tax purposes. In such cases, the
owner can take the losses off his own individual 1040 forms.

Also, as the textbook explains, the legendary sports team owner Bill Veeck
convinced Congress that roster depreciation should be tax deductible.
Players are depreciated like cattle. If the depreciation is large enough to
cause a loss, that comes off the owner's 1040, too.

It was Veeck who said that you buy a team to make bucks selling it. Moores
bought the Padres in 1994 for $80 million, and two years ago Forbes said
the team was worth $197 million. Since then, the subsidized ballpark deal
has been finalized. Also, Fort says the team will be worth even more if the
recent move toward revenue sharing succeeds.

Spanos bought the Chargers in the 1980s for $72 million; Forbes recently
put the value at $393 million, but according to San Diego Magazine, Spanos
boasted to Rush Limbaugh that he could get $500 million to $800 million for
the team.

If he gets the massive handout he now seeks on bended knee, the value would
be much more than that.